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Dunham v. Holland

March 31, 2006


The opinion of the court was delivered by: James Robertson United States District Judge


When trustees of the 1993 United Mine Workers of America (UMWA) Benefit Plan (1993 Plan) cannot agree on a question calling for interpretation of plan language, the Plan calls for them to resort to arbitration. In this case, the trustees for the coal-producing signatories to the 1993 Plan (Employer Trustees) disagreed with the trustees for the UMWA (Union Trustees) about whether Plan benefits were payable to certain retirees of the now-bankrupt BethEnergy Mines Corporation. Their dispute was submitted to arbitration, and the arbitrator ruled in favor of the Union Trustees. The Employer Trustees filed suit in this court, seeking reversal of the arbitrator's ruling. The parties filed cross-motions for summary judgment. On March 31, 2006, declining to disturb the arbitrator's decision on one of two disputed points but finding that his decision on the other point did not "draw[] its essence" from the parties' agreement, Steelworkers v. American Mfg. Co., 363 U.S. 564, 597 (1960), I ordered each motion granted in part and denied in part.*fn1 This memorandum explains that order.


Multi-Employer Benefit Plans

The original UMWA multi-employer benefit plan was established in 1946 to provide medical care to coal miners and their dependents. That plan, and subsequent plans negotiated by UMWA and coal producers, was funded by payroll deductions and royalties paid by signatory coal producers, prorated according to the amount of coal each company produced.

In 1974, the multi-employer plan was divided into four separate plans: the 1950 and 1974 pension plans, and the 1950 and 1974 benefit plans. In 1978, the parties agreed that thenceforth coal producers would provide health benefits to their own retirees as long as they stayed in business. They agreed to continue the 1974 multi-employer benefit plan only to cover so-called "orphan" retirees, defined as retirees whose last employer is "no longer in business." Over the next twelve years, the 1974 benefit plan ran large deficits, as employers manipulated corporate forms to fit the "no longer in business" test and "dumped" their employees onto the plan.

In the 1981 wage agreement, the coal producers and the UMWA addressed the employee "dumping" problem by specifying that an employer is "no longer in business" only if the employer:

(a) has ceased all mining operations and has ceased employing persons under this Wage Agreement, with no reasonable expectation that such operation will start up again; and

(b) is financially unable (through either the business entity that has ceased operations as described in paragraph (a) above, including such company's successors or assigns, if any, or any other related division, subsidiary, or parent corporation, regardless of whether covered by this Wage Agreement or not) to provide health and non-pension benefits to its retired miners and surviving spouses.

Plaintiffs' Ex. 2 at 2-3. The plan's trustees applied these twin elements, cessation of operations and financial inability to pay, as written, until two federal circuit courts decided that a retiree is still orphaned if a corporate successor, though having the financial ability to pay benefits, is free from any legal obligation to do so. See District 29, UMWA v. Royal Coal Co., 826 F.2d 280 (4th Cir. 1987); UMWA v. Nobel, 902 F.2d 1558 (3rd Cir. 1990). The effect of those decisions was to bring thousands of new retirees within the framework of the 1974 plan and exacerbate the employee dumping problem. The 1974 plan now faced liabilities far exceeding its assets, ultimately requiring federal intervention through the Coal Act of 1992, which provided benefits for miners retiring before September 30, 1994, but left the fate of miners retiring after that date to collective bargaining.

In the 1993 wage agreement, mindful of the Royal Coal and Nobel decisions, but believing that the plan's original language adopted in 1981 had appropriately defined when an employer was "no longer in business," the parties simply made clear their intent that the requirements of Article XX(c)(3)(ii) be applied as written, by adding the sentence: "The parties expressly intend that each of the requirements of [cessation of operations] and [successors' financial inability] be met." Plaintiffs' Ex. 1 at 5. This added language conformed the agreement to the trustees' prior practice of applying both requirements as written in jurisdictions where the Royal Coal and Nobel decisions were not controlling. The parties also agreed on provisions to minimize the risk that workers might be orphaned without benefits. The 1993 wage agreement required employers to promise that coal operations would not be sold or transferred to any successor "without first securing the agreement of the successor to assume the Employer's obligations under this Agreement" and required that an employer who sells or transfers operations to a successor immediately notify UMWA and provide documentation of the successor's assent to its obligation under the 1993 Plan. Plaintiffs' Ex. 1 at 13.

The UMWA and the Bituminous Coal Operators' Association (BCOA), an organization representing several coal producers, agreed to renegotiate the 1993 agreement before it was set to expire, on August 1, 1998. The parties agreed that contributions to the plan would be increased from 10ó to 13ó per hour worked. The new rate became effective on January 1, 1998, but non-BCOA employers would not have to pay the higher rate until August 1, 1998. The parties also added the following sentence to Article XX(c)(3)(ii)(c) -- this became a point of dispute between the trustees: "An Employer's obligation to contribute at the rates specified in Section (d) must be in effect on the date the Employer is first considered to be 'no longer in business.'" Id.

The Apex Minerals Arbitration

The meaning of this last addition was litigated by the parties before Arbitrator Richard Kasher in In re Apex Minerals. Apex Minerals was a signatory to the 1993 wage agreement and contributed to the 1993 benefits plan. It ceased operations in 1997 and did not sign the 1998 agreement, but it did not file for bankruptcy until January 2002. The trustees disagreed about when Apex was "no longer in business" and whether the presence or absence ...

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